Canadian Mining Review

Mineral Resource Supply Vulnerability

When China restricted exports of rare earths, it set off alarm bells around the world

By Patrick Whiteway

Globalization was supposed to give manufacturers a secure supply of raw materials, at competitive prices. But when one country dominates the supply of a particular material, all bets are off. China is one such country. It dominates the supply of several metals, including the rare earths. So when China imposes trade restrictions on these metals, other countries have to pay a higher price for them. That's not playing by the rules said the World Trade Organization, February 1.

Top 10 Nickel Stories of 2011

2011 was an interesting year for the Devil's metal

By Patrick Whiteway

Twenty-eleven was an eventful year for nickel, the steely grey metal that is so essential to high end stainless steels and finds a myriad of modern applications from rechargeable batteries to jet engines. The world of nickel had everything a mine engineer could ask for in 2011: Prices gyrated, supply and demand increased over 2010 and the organization that represents companies that mine and refine this 'envrio-metal,' the Nickel Institute, suffered a humiliating defeat in the courts of Europe.

2011 began with the price of nickel hovering above US$11 a pound and ended the year significantly lower at US$8.49. Demand from stainless steel producers in China, which use 25% of all nickel mined on the planet, continued to grow, although at a much slower pace than was anticipated at the beginning of the year by the most bearish of analysts. Meanwhile, nickel producers continued to build supply, thus dragging prices downward.

From where this mine engineer sits, the top nickel stories of 2011 were as follows:

1. Human health and environment classificaitons where upheld in Europe. In July, the European Court of Justice rendered a final decision on a case brought before it by the Nickel Institute. The decision neutered the industry's argument that Europe's reclassification of a wide range of nickel compounds is unlawful. The only winners in this very costly debacle were the over-priced lawers in London and Toronto. The millions wasted could have been used to increase our understanding of how nickel compounds impact human and environmental health;

2. Nickel laterite operations failed to meet expectations. Nickel laterite operations such as Sherritt International's Ambatovy project in Madagascar and Vale's Goro project in New Caledonia, for example, struggled to meet production and capital expenditure targets;

3. 'Social licence to operate' issues slowed new mine building in the developed world. Nickel developments in Canada encountered social challenges with Cliffs Natrual Resources and Noront, two companies in the so-called 'Ring of Fire' nickel-chromium development in northern Ontario, running into "social licence to operate" snags;

4. Supply and demand headed toward imbalance. Nickel prices fell over the 12-month period due to an increase in supply and a slower than anticipated increase in demand brought on by a slumping global economy;

5. Carbon taxes began their inevitable rise to prominence. Australia approved a carbon tax in October and authoritarian China, which is home to the environmental disaster that is nickel pig iron production, signaled it would bring in a carbon tax within the next five years;

6. The new kid on the block made waves. The world's largest metals trader, Glencore Inc., went public in June and signaled its interest in nickel by increasing its grip in Minera, operator of the Murrin Murrin mine, a profitable nickel laterite operation in Western Australia;

7. Cash-rich majors modernized existing operations. Norilsk announced major capital expenditures in Russia and Xstrata and Vale both announced major capital investment plans at their existing nickel operations in Canada: Xstrata announcing it will spend $200 million at Reglan mine in northern Quebec and Vale to spend an equal amount on the Clarabelle concentrator in Sudbury.

 

Europe's Court of Justice Renders Judgement

The global nickel industry lost not only an important legal case last week, it lost credibility with the public. Can it rebuild the good will it once had?

By Patrick Whiteway

On July 21, the Court of Justice of the European Union published its long-awaited judgement in a case brought by the Nickel Institute three years ago (Case C-14/10).

The Court ruled against the Nickel Institute.

Since it was created in 1984,the Nickel Institute has done a lot of good. It has informed and educated a generation of engineers and designers about the use of nickel and nickel compounds. It's sister organization, the Nickel Producers Environmental Research Association, has conducted important science on a shoe string budget. And the Institute has led the global mining industry in the recognition of issues important to society: climate change, human health, life cycle assessment, metals recycling and sustainable development.

In deciding, three years ago, to change course and devote tens of millions of dollars to pursue a legal case against the European Union's desire to regulate the hazards posed by nickel substances, it crossed a line.

No longer could the nickel industry be seen as a cooperative partner, acting with society to realize the many advantages that this metal can bring to wide areas of human endeavour.

No longer could the nickel industry be seen as placing a high priority on re-investing its profits into conducting the necessary science that would demonstrate the safety of its products.

No, it became a public adversary. Three years ago, the nickel industry decided to openly oppose society's desire to regulate the hazards associated with nickel.

By bringing the case before the courts in Europe, the nickel industry committed a fatal error in logic. It confused hazard with risk and in the process lost all credibility with the public.

Now that the clear-headed justices of the Court of Justice of the European Union have revealing the industry's hubris, can the nickel industry rebuild the good will that it once had?

Perhaps it can.

First, the legal brain trust that persuaded the Nickel Institute executive committee and Board of Directors of the efficacy of the legal case in the first place must go. There must be a clear break with the past.

Secondly, the member companies of the Institute need to more effectively challenge the opinions of it's largest member (Russia's Norilsk Nickel) when it comes to issues that shape the industry's public persona.

Sadly, there are fewer Canadian voices on the Board of Directors of the Institute to challenge the Russians.

And lastly, the Institute must re-focus its efforts on science and be more open and transparent about issues important to the public (such as updating nickel life cycle assessment data to include data from Norilsk and laterite mining).

Also, it would be healthy for the Institute to have an open and frank discussion on whether or not nickel should be used in human food and water contact applications. Specifically: does the nickel oxide in the passive layer of austenitic stainless steel pose a hazard to human health?

For the new President of the Institute to say that the loss last week of an important legal case is "regretable" is a collosal understatement. Rather, he should see the Nickel Institute's loss as an opportunity to renew the institution. And he could begin that process by openly admitting that the Institute was wrong to bring the case to court to begin with.

________________________________________________________

Comments are welcome. Click on "Comments" below references.

REFERENCES

1. T.M.C. Asser Instituut

http://www.asser.nl/default.aspx?site_id=7&level1=12218&level2=12247&level3=12486

"Nickel carbonates were classified as carcinogenic and toxic, to the dislike of its producers. In a British case, the High Court of Justice (England and Wales) asked the ECJ whether the Commission directives regulating this classification was valid or not.  The AG finds that the Commission did not manifestly exceed the bounds of its discretion where it based its nickel carbonates decision on findings with regard to other nickel compounds. This method of predicting properties of chemicals based on the “read-across” method is generally accepted as scientifically valid, and is explicitly endorsed in REACH and implicitly in the EC rules at stake in this case. As for the accusation that the risks during normal handling or use of the substances were not assessed (some nickel carbonates were said to be used only in laboratories) , the AG notes that in his view, hazards and risks are being confused here. The EU system for classifying and labelling substances is based on the reporting of information relating to the hazards associated with substances, as is stated expressly in Commission Directive 93/67/EEC laying down the principles for assessment of risks to man and the environment of notified substances. Under Article 2(2) of this Directive, ‘hazard identification [of a substance]’  is defined as ‘the identification of the adverse effects which [that] substance has an inherent capacity to cause’. Hazards must therefore be classified independently of the manner or location in which the substance is used. Risk assessment on the other hand is concerned with the likelihood that one of the hazards associated with a substance will occur as a result of human or environmental exposure to that substance. Risk management measures thus may vary considerably depending on the conditions and types of use. Other arguments also did not disclose issues that could affect the validity of the contested Commission directives."

2.  Case C-14/10 Nickel Institute v Secretary of State for Work and Pensions  24/03/2011

Ontario's Ring of Fire: An Issue of Sustainability

The close proximity of Ontario's Ring of Fire, Manitoba's Thompson Nickel Belt and low carbon-emitting hydro power, give Canada an unparalleled opportunity to become a long-term, sustainable producer of stainless steel, the enviro-metal. If only the sustainability of the northern boreal forest could be assured as well.

By Patrick Whiteway

Massive deposits of chromite and nickel have been discovered in the 'Ring of Fire' under the boreal forest of northwestern Ontario and plans by Cliffs Natural Resources and Noront Resources respectively to develop them are well underway. How this development is managed by the federal and provincial governments could be historically significant for resource development in Canada.

Canada's existing nickel mines and concentrators (at Thompson, Sudbury, Reglan and Voisey's Bay), smelters and refineries (at Thompson, Sudbury and Long Harbour) are located in four provinces (Manitoba, Ontario, Quebec and Newfoundland) and are operated by two companies (Vale and Xstrata). The development of new nickel mines and concentrators in Ontario's 'Ring of Fire' and at Nunavik (Reglan South) in Quebec by other companies demands that all four provinces give due consideration to maximizing resource efficiency and long-term sustainability on behalf of all Canadians. (map by P. Whiteway)

 

The scale of the undertaking is huge. It could, in the next 10 years, create Canada's first chromite mine and open up a large area of nothern Ontario via air, rail and road links to future mineral development. With an appropriate level of long-term visionary leadership, the Ring of Fire development could also transform Canada into the lowest-carbon-emitting source of stainless steel on the planet.

How? Well, almost all of the things that go into making stainless steel - nickel, chromium, iron, scrap stainless steel and low-carbon emitting hyro-electric energy - are readily available within a 500 km radius of the Ring of Fire. Putting them all to good use in a co-ordinated effort will be the challenge.

What is not in place is a co-operative agreement with the native people of northwestern Ontario and a commitment on the part of the key corporate players to protect the source of these people's livelihood - the boreal forest. That could be a deal breaker.

A feasibility study to construct a $2-billion railway to link the isolated northern property to existing infrastructure just north of Lake Superior is expected soon.

To benefit from this unprecedented opportunity, Canadians should demand a high level of inter-provincial cooperation.

Is Canada's existing national mineral development policy sufficiently equipped to guide this process?

AT THE PRESENT TIME, CANADA'S NATIONAL MINING policy does NOT include a requirement for companies developing mineral resources to do everything possible to add value to those resources before exporting them to other countries. It should.

If it did, then metal "concentrates" would be processed here in Canada, thus maximizing benefits to all Canadians. This would include the processing of primary chromite and nickel into stainless steel. But would such an enterprise be economic?

Game-changing hydro electric developments are presently taking place in Manitoba. And, over the next few years, as the world's major economies adopt some form of carbon tax or cap-and-trade system for managing carbon emissions, this source of electrical power will give Canada a distinct competitive advantage in the global economy.

Our national mineral development strategy should, therefore, include a requirement to use mineral resources to our advantage by processing them prior to export.

The close proximity of the 'Ring of Fire' to the Thompson Nickel Belt in Manitoba, where smelting and refining facilities are in place, makes the development of a domestic stainless steel melting capacity worthy of serious investigation. Manitoba should do everything within its power to make such a 'brownfields' development attractive to existing stainless steel producers.

Such a long-term vision would be a shinning example of inter-provincial co-operation, resource efficiency and sustainable development that would benefit all Canadians.

REFERENCES

"Power to the (other) Provinces", by Jan Carr. Globe and Mail, Saturday, July 31, 2010. http://www.theglobeandmail.com/news/opinions/power-to-the-other-provinces/article1656514/

Access to land resources is an emerging sustainability issue for mining companies and environmental groups alike. In the southeastern United States, for example, coal mining companies want to mine coal by a method called mountain top removal. They are pitted against environmental groups which want to use the same mountains for erecting a string of wind turbines to generate renewable energy in perpetuity. See: "A Battle in Mining Country Pits Coal Against Wind," by Tom Ziller Jr., The New York Times, Sunday, August 14, 2010. http://www.nytimes.com/2010/08/15/business/energy-environment/15coal.html?_r=1&hpw

Recent studies have shown that mountain top removal does negatively impact the natural environment. See: "Mountain Mining Damages Streams" by Natasha Gilbert in Nature, August 9, 2010. http://www.nature.com/news/2010/100809/full/466806a.html

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Nickel: 2010 Year in Review

What were the most significant events to impact the nickel industry in 2010?

By Patrick Whiteway

No doubt nickel producers are breathing a sigh of relief today because the price of nickel ended the year above US$11 a pound. That's good news for the new, high-cost producers coming on stream and for existing producers in strike-bound Ontario, Canada that recently came back online.

What events in 2010 contributed to this happy state of affairs?

Following, are my nominations for the ten most important events that kept demand for nickel rolling along and what managed to limit the supply of nickel, thus keeping prices relatively high, so that most producers could have a good chance of making a profit.

1. A year-long strike at Vale SA's nickel operations in Sudbury finally came to an end in July thanks to intervention by the Ontario provincial government.

2. The tug-of-war between two Russian oligarchs for control of Norilsk Nickel continued throughout the year, stifling the world's largest nickel producer from concentrating on productivity and environmental improvements to enhance shareholder value. http://bit.ly/dIBz0d

Vale SA's Goro Nickel Laterite Project in New Caledonia

3. Two major high pressure acid leach (HPAL) nickel laterite operations inched toward full production under the watchful eye of nickel analysts around the world, some of whom doubt these projects can make a buck.

4. Stainless steel production rebounded from the global financial crisis and nickel continued to find new markets in de-carbonizing the global economy through solar energy plants, wind farms, hydro power plants, biomass plants, fuel cell power plants, waste heat power generating plants and carbon sequestering applications.

5. The European Union Court of Justice announced it will decide (probably in 2011) if the recent classification of nickel compounds as carcinogens, mutagens and reproductive toxicants is valid. http://bit.ly/aI8pFW

6. Chinese companies made significant investments in junior nickel exploration and producing companies in Canada. Junior nickel exploration companies increased their spending on grassroots projects, advancing projects across the country.

7. Cliffs Natural Resources gained control of the chromite production potential in Ontario's Ring of Fire, leaving Noront Resources holding the potential for nickel production in this greenfields project that is not without controversy. http://bit.ly/bKH1as

8. Glencore International Group continued to seek control of more nickel production capacity worldwide. http://bit.ly/9socXZ

9. Nickel health classifications in Europe continued to give nickel platers the chills over cancer risks. This chill had a cooling effect on other, more important markets as well. http://bit.ly/9vBZtu

10. Rio Tinto joined the long list of new nickel production capacity by announcing plans to develop the Eagle mine in Michigan State by 2013. http://www.eagle-project.com/

If you would like to comment on the above, or if you would like to add something to this list, please click on "Comments" below.

 

 

Back To Work

As nickel miners go back to work in Sudbury, Ont., there's a remote chance that the cultural abyss between the old Inco Ltd. and the new Vale S.A. will one day be bridged.

By Patrick Whiteway

About 3,000 unionized workers at Vale S.A.'s nickel operations are back to work this week in Sudbury, Ontario after a long and bitter strike that lasted more than a year.

Besides helping to keep nickel prices high during the recession (by reducing supply), the strike exposed the huge abyss that exists between the old 'motherly' corporate culture of the Inco Ltd. and the modern Brazilian corporate culture of the new owners, Vale S.A.

That abyss was best illustrated during the strike in an article by Linda Diabel that was published in Toronto Star on June 6, 2010.

In it, Diabel artfully describes the strike-breaking tactics Vale used to try to change the culture from one of sacrifice and entitlement to one of productivity improvement.

If you worked for Inco in Sudbury prior to the Vale takeover in 2006, the following short story might remind you of what it was like to work there. I wrote it in the early 1980s while employed as a young mine planning engineer at Copper Cliff South Mine, just west of the Copper Cliff smelter. The story was published in the "Odds 'n' Sods" column of the weekly newspaper The Northern Miner. I invite you to comment on it below and to submit your own stories about what it was like to work for the 'old' Inco.

Copper Cliff South Mine on the South Rim of the Sudbury Basin, Ontario

"As young graduate mine engineers fresh out of university and employed at one of Canada's largest nickel mines, my friends and I naturally looked to the senior staff members for guidance and example, because we eagerly aspired to attain their positions in the company.

"Very often, as can be expected in a large company I suppose, the senior engineers were surrounded by an atmosphere of confidence and spoke in esoteric, technical jargon bordering on arrogance. We interpreted this as a consequence of working for a corporation which prides itself on building the biggest, the tallest, the deepest and the most modern nickel mining facilities in the world.

"So it came as some surprise to us to find that our mine engineer, the man above our immediate supervisor in the organizational chart, appeared to be somewhat of an absent-minded technical bore with a flair for missing the obvious. The man we compared him to was the Colonel Henry Blake character in the old M*A*S*H series on TV.

Colonel Henry Blake, M*A*S*H

"On numerous occasions he portrayed himself (intentionally or not) as a bumbling idiot, which of course we knew he was not, but the constant recurrence of this thought, brought on by his fumbling while under the watchful eye of a couple of young engineers, never failed to amuse us.

"Some of the things we noticed were purely physical things like stumbling on steps, attempting to write with the wrong end of a pencil, or always being the one in winter to get his car stuck in the parking lot. The others we labelled mental errors like forgetting to take a mining lamp underground. And like Col. Blake in the TV show, he was always the last person to find out what was going on around him.

"When technical and business people visited our mine, our Col. Blake would escort the visitor(s) around the engineering office, desk by desk, to chat with the engineers and surveyors and to explain the workings of the mine and the plans we had for the immediate and long-term future.

"Without fail he would give the visitor outdated information and would ask the engineers for plans which, as it turned out, had been scrapped because of some recent development or change in thinking brought on by new information from the field, such as recent diamond drill hole results or the movement of a mining crew and equipment to a higher priority work area of the mine.

"It was not clear to us whether or not he did this intentinally in order to get us to explain our work, but in a way, mine tours appeared to be as educational to our mine engineer as they were to the visitors. In fact, we were certain this was the only way that he got information about the operation of the mine. As one can imagine, this gave us a feeling of being on top of things; surprising even our immediate supervisor and giving us a sense of pride, confidence and control; which may have been the intent of our mine engineer all along.

One of the most productive mines in the Ontario Division in the 1980s

"This sense of control became so complete, in fact, that we soon began to exercise the authoritative power that was usually reserved for the mine engineer alone. Besides just motivating, guiding and supervising our design work, the mine engineer's duties also included giving final endorsement to our design plans; everything from day-to-day operational plans to long-range mine development plans.

"This would involve sitting down with the mine engineer to explain the proposed design, answering his questions and then getting his authorization, in the form of his signature on the engineering drawings, to proceed with the design. When it came to the day-to-day operations however, we were very often pressed for time in order to catch the men at cage time before they went underground on the afternoon shift.

"So things such as purchase orders, work orders and In-the-Hole drill layouts were quickly whisked off to the respective crews with the mine engineer's initials miraculously in place even though he had not seen the documents. One can imagine the conversations that followed in the cage when the mine engineer was going underground for one reason or another and would invariably ask the men what they were working on that shift.

"It was in this way therefore, that our mine seemed to operate smoothly; the miners getting fast, efficient service from the engineering office and we in turn, getting fast, efficient advances underground. Much to the delight of our Col. Blake, this made us one of the safest, lowest cost producers in our division.

"In hindsight, I suppose that it was not just by chance that management had chosen our mine to train its newly hired graduate engineers. In the course of our stay there before being transferred to other mines in the division we not only learned the essentials of engineering design, we also learned some valuable management skills including taking responsibility and working effectively with people. This would not have been possible without the supervision of our Col. Henry Blake whom we are certain would never have allowed our miners to be exposed to any unsafe condition underground. And so it was with us too."

To submit a comment on the above, click on "Comments" below.

Questions for Royal Nickel

Three former executives of Inco Ltd., now on the board of Royal Nickel Corporation, have a duty to provide potential investors with a thorough analysis of the risks of investing in a high-cost nickel producer

By Patrick Whiteway

Royal Nickel Corp. is seeking $100 million in public financing at a time when clouds of uncertainty hover over the nickel market - clouds that will break only for the low-cost producers of the Devil's metal.

A preliminary analysis  of the prospects for profitability at Royal Nickel's Dumont nickel property in northern Quebec, concludes that the proposed $1.2-billion project will work out only if the price of nickel stays at US$8.00 a pound or above for the foreseeable future (for a 21-year operating life).

Like all speculation in commodities, the future price of nickel is something that is impossible to foretell. But that doesn't stop so-called "experts" from making predictions.

A recent survey compiled by Reuters of 2010 nickel price predictions bodes well for the Dumont project. It reveals that 24 of 48 market analysts surveyed worldwide foresee the price of nickel averaging US$8.25 per pound or above this year.

Overall, their predictions range from a low of US$6.69 per pound to a high of US$9.98. All, no doubt, cite double digit economic growth rates in China as a driver. Not one of the analysts predicted that nickel will dip below the average 2009 price of US$6.67.

I wonder what the prediction record is for these forecasting "experts". How many of them predicted that the average price in 2009 would be $6.67 for example?

Survey results of 2010 and 2011 nickel price predictions as compiled by Reuters

I have not read any of those reports, but I doubt that they include an in-depth discussion of what could cause the price of nickel to fall.

A lower nickel price should not be an unexpected event. A lower price is within the tunnel of possibilities. The following chart shows historical LME nickel prices from 1982 to 2009. Rarely, has the price been above $6 a pound.

Historical nickel prices and mine production costs (1982-2009) as compiled by Brook Hunt

So, a nickel price lower than $8 is very possible, especially considering the recent reclassification of nickel and nickel compounds by the European Union (and globally via the United Nations' Globally Harmonized System of Classification and Labelling of Chemicals) which followed a 14-year risk assessment process in Europe.

This regulatory development ,which came to light in 2009, could have a significant impact on long-term nickel demand. Demand could fall, for example, if a stigma were to be attached to nickel as a result of the classifications and if three lawsuits currently before the Court of Justice of the European Union drag on (and if they fail to overturn the classifications).

That's a lot of ifs, but as much as two-thirds of nickel demand could be negatively affected. Therefore the profitability of new, high-cost mines such as the Dumont project (not to mention the much larger and costly nickel laterite mines that are coming into production in the next few years) could be impacted.

As former executives of Inco Ltd. during a time when the European nickel risk assessment was being conducted by the Danish Environmental Protection Agency, Scott Hand, Peter Jones and Peter Goudie, are (or should be) well aware of the EU reclassification issue. As such, they have a special duty to fully brief investors on three costly lawsuits presently winding their way through the Court of Justice of the European Union and to explain how the outcome of these lawsuits could affect the health classifications of nickel.

The outcomes of these lawsuits are not expected until 2011 or 2012, which gives architects and the designers of white goods and other consumer products plenty of time to reconsider the use of nickel-containing materials in the consumer products and buildings they design. They may very well decide NOT to use materials that  contain compounds that are considered by the EU to be carcinogens, mutagens and reproductive toxicants (CMRs). They may decide to substitute nickel-containing austenitic stainless steel with nickel-free ferritic stainless steel.

If the analysis of the 48 agust investment firms quoted in the Reuter survey mentioned above had factored in the reclassification of nickel, then their forecasts for nickel prices might have been significantly lower. That's because supply will significantly outstrip demand should demand decline due to a perception on the part of consumers that nickel-containing materials are to be avoided.

On the supply side of the nickel market, the Metals Economics Group of Halifax, N.S. recently published the following chart:

Potential nickel production from discoveries relative to global nickel production 1998-2009

It shows the relative positions of low-cost sulphide producers and generally higher-cost laterite producers.

If nickel demand were to fall significantly, the annual production of nickel from low-cost nickel sulphide operations worldwide is sufficient to meet demand. High-cost operations would go bust. And there are plenty of high-cost producers around and more being contemplated. (See a report  prepared recently for the International Nickel Study Group  (INSG) on nickel heap leaching test sites worldwide.)

In light of the above, here are some questions investors should ask Royal Nickel as it seeks $100 million to develop the Dumont nickel property:

• Why hasn't the Dumont deposit been developed in the past? It's not a new discovery.
• Should you succeed in bringing Dumont into production, what are your plans for the operation should nickel prices dip below US$8.00?
• What possible future developments do you anticipate could impact costs at Dumont in the near future? Hydro power costs in Quebec; potential future carbon emissions taxes; or transportation costs relative to the price of oil; for example?

The world doesn't need more, low-grade, high-cost nickel producers. What is needed are more large tonnage, high-grade, low-cost nickel mines of the kind found at Voisey's Bay, Thompson and Sudbury. There are companies looking for these types of deposits in Canada and I hope to make them the subject of a future post on this website.

REFERENCES:

1. European Nickel Risk Assessment http://www.mst.dk/English/Chemicals/Substances_and_materials/Nickel/

2. Case "Nickel Institute v Commission" before the Court of Justice of the European Union  http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:161:0053:0054:EN:PDF

3. Case "Nickel Institute" before the Court of Justice of the European Union  http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:063:0038:0039:EN:PDF

4. Case "Norilsk Nickel Harjavalta Oy and Umicore v Commission Environment and Consumers" before the Court of Justice of the European Union  http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:063:0038:0039:EN:PDF

If you would like to comment on the above posting, please click on "Comments" below.

Nickel Pig Iron: This Pig Wouldn't Fly For Long

By Patrick Whiteway

Canada's National Newspaper, The Globe and Mail, today published a feature story in its Report on Business section about nickel pig iron production in China.

Written by Andy Hoffman, it carries the provocative headline "A breakthrough in China, another blow for Sudbury." Like many newspaper headlines, this headline is designed to attract attention but is patently untrue.

I also believe that the premise of the story: that nickel pig iron (NPI) production in China is a threat to nickel sulphide production in Canada, is untrue for at least two reasons:

1. NPI production in China is the highest cost nickel in the world; and

2. NPI production in China is among the "dirtiest" nickel in terms of emissions profile (for more detail, see www.carbonemitters.org ).

Such production can thrive in the short term, but is unsustainable in the long run.

This pig wouldn't fly for long

When striking nickel workers in Sudbury, Ontario settle their 11-month strike against Vale S.A. and get back to work, the world will be awash in low-cost, low-carbon-emitting nickel. Prices should drop as a result. In fact, they could fall so far that NPI production in China would become uneconomic.

In a nutshell, NPI producers in China are opportunists.

Global nickel demand is presently at record highs and due to the strike in Subbury and at Voisey's Bay in Labrador, nickel supply cannot keep pace with this pent up demand. This dynamic supports today's price of US $8.84 per pound, a price that gives producers, such as the one profiled by Andy Hoffman in the Globe and Mail article, an opportunity to produce nickel pig iron at a profit.

China imported about 3 million tonnes of nickel laterite concentrates in the first quarter of 2010, mainly from the Philippines and Indonesia (but some from New Caledonia).

But it cannot last for long.

In the long term, only low-cost, low-carbon-emitting nickel producers, such as those in Sudbury, will survive.

To comment on the above posting, please click on "Comments" below.

Mining Films Paint an Ugly Picture

To turn the industry's negative image around, the mining industry needs to invest millions in new films

By Patrick Whiteway

Canada's latest contribution to popular culture, Justin Bieber, is bathing in positive publicity. His Twitter page tells 2.8 million followers, largely pre-teen girls, seemingly everything about him. And a music video of his song Baby has been viewed 171 million times on You Tube (as of June 1, 2010).

Not so with the mining industry. Mining publicity in today's popular culture is exclusively negative, documenting the shenanigans that go on in the industry.

Two films about gold mining, for example, were screened recently in Toronto at the Canadian International Documentary Festival, more commonly known as the HotDocs Festival.

One was the world premiere of The Devil Operation directed and produced by Stephanie Boyd.

And the other was entitled They Come for the Gold, They Come for it All, directed by Pablo D'Alo Abba and Cristian Harbaruk.

On May 3rd I took in The Devil Operation.

Set in Peru at the Yanacocha gold mine, operated by Newmont Mining Corp., this film documents the surveillance, harassment, kidnapping and torture of ecoactivists and indigenous farmers (and the murder of one protester) by security guards reportedly hired by Newmont (see trailer below).

Following the screening, the hero of the story, a Catholic priest, Father Marco Arana, answered questions from the audience. He mediated talks between Newmont and the local farmers.

One of his many messages was that if investors want to make responsible investments in mining companies, then investors should demand to know the details about how their money is being spent. In this case, Newmont reportedly paid security forces who committed crimes against local farmers.

The Devil Operation made me think about the biggest scandal in Canadian mining history: the Bre-X Minerals Inc. fraud in Indonesia and whether or not that story has been satisfactorily portrayed in film.

It turns out that Bre-X was the subject of a short documentary film in 2003 called Fool's Gold which was broadcast as part of a series called Masterminds (see the You Tube version in three parts below). But no feature films have been made of that monumental gold salting fraud which cheated investors out of millions of dollars.

In mentioning Bre-X to my wife, she reminded me of a book called "The Silver Bears" by Paul E. Erdman. This piece of fiction, published in 1974, is about the intentional manipulation by the mafia of the silver market. This book is hilariously funny and very entertaining. It would make a great movie.

In fact, on the cover of the book are the words: "now a major motion picture."

Sure enough, in 1978, the book was made into a feature length film called simply "Silver Bears". It was directed by Ivan Passer and stared Michael Caine.

If this is the type of presentation that the general public uses to form an opinion about the mining industry, is it any wonder that the Canadian parliament is presently debating Bill C-300? That's  a private members bill that will add another series of regulatory hoops for Canadian companies to jump through when operating in countries other than Canada. It's being hotly contested by the industry because of the costs it would add to international mine developments.

I think that if the mining industry seriously wants to improve its public image and if it wants to continue to have a licence to operate in the developing world, it should embrace Bill C-300 and be more open and transparent about how it spends shareholders money.

The industry should dig into its deep pockets and finance documentary and feature length films that portray the great work that responsible mining companies are doing to earn the respect of the local people where they operate.

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Will Canadians Benefit from China's Investments in Canadian Nickel?

In the past year, China has invested hundreds of millions of dollars in Canadian nickel properties both producing and exploratory. Will these investments benefit Canadians?

In September, 2009, Ningbo Sunhu Chemical Products Co., China's largest nickel trading company paid $21.8 million for a 15.6% interest in Royal Nickel Corp.

Royal is a privately-held junior Canadian company that holds a 100% interest in the undeveloped Dumont nickel property located near the town of Amos in the prolific Val d'Or mining area of northwestern Quebec.

Three former Inco Ltd. executives (Scott Hand, Peter Goudie and Peter Jones) are the principal players in Royal Nickel, which intends to make an initial public offering of shares sometime this year.

The Dumont property hosts an indicated resource of 365 million tonnes, grading 0.32% nickel (or 1.2 million tonnes of nickel).

Plan view of Dumont Property showing proposed open pit outline (Royal Nickel Corp.)

That's a lot of nickel; enough to satisfy global demand for an entire year. But of course it will take a huge investment (about $1.2 billion) to build a producing mine and about 20 years to methodically mine the ore, concentrate it, smelt it and refine it into a pure, saleable product.

Two months later, in November, 2009, a controlling (77%) interest in Canadian Royalties, owner of the Nunavik nickel property was purchased by Jilin Jien Nickel, a Chinese company for $148.5 million. The Globe and Mail reported on this hostile takeover in August 2009 when the story first broke. Located not far south of the producing Reglan nickel mine in Ungava in Quebec's far north, Nunavik is another undeveloped nickel property with a measured and indicated resource of 5.2 million tonnes grading 0.93% nickel (or about 0.05 million tonnes of nickel).

One happy Canadian: Crowflight Minerals VP Exploration Greg Collins (foreground) with Chief Geologist Rick Sproule (background) (Photo by Patrick Whiteway)

More recently, Jinchaun Group, a major Chinese nickel company offered to buy, for $150 million, a significant interest in Crowflight Minerals Inc., the company that operates the Bucko nickel sulphide mine in the Thompson Nickel Belt of northern Manitoba.

Proven and probable reserves at Bucko are 3.7 million tonnes grading 1.45% nickel and indicated resources add another 2.8 million tonnes grading 1.53% nickel.

At a milling rate of 600 tonnes per day, this underground operation is producing nickel concentrates at a rate of about 127 tonnes of contained nickel per quarter.

Surprisingly, even though the Bucko mine is just 115 km south of the Thompson nickel smelter and refinery, concentrates from the Bucko mill are shipped 2,200 km eastward by rail to Sudbury for processing. Not the most efficient way to process nonrenewable resources.

So, why is China suddenly investing heavily in nickel properties in Canada? In the early stages of the global financial crisis, because stock prices had plumeted, these investments appeared to be purely opportunistic. But today with nickel trading at double the year-ago price, stocks have rebounded and Chinese companies continue to invest.

Is China interested purely in making a decent return on an investment or, is their interest really to export nickel concentrates to feed hungry smelters in China?

Jinchuan nickel mine, China (chchtogansu.blogspot.com)

Of the 38 operating nickel mines in China, the Jinchuan mine in Gansu Province is by far the largest, accounting for about half of that country's total nickel reserves and resources. But reserves are not being replentished at a sustainable rate.

In 2005, China had proven reserves and resources of 7.9 million tonnes of contained nickel, down from the 8.3 millon tonnes reported in 2001.

Back in Canada, recent Chinese investments in Syncrude, one of Alberta's oil sands producers, created and uproar over concerns that raw bitumen could be exported to China as a result. Ottawa responded quickly with reasurances that unprocessed bitumen would not be exported on the Conservative government's watch. There is no indication that the same policy would apply to nickel concentrates.

Will his stainless steel plant import Canadian nickel?

Do Chinese investors, then, want to export refined nickel to China to feed hungry stainless steel plants?

At 8.8 millon tonnes, China is a leader in stainless steel production, according to the International Stainless Steel Forum, accounting for 36% of total global output in 2009 of 24.6 million tonnes.

With demand for stainless steel growing in China, the country continues to add new capacity, investing millions in new production facilities, so the need for nickel continues to grow.

For China's investments in Canada's nickel to be truely benefitial to Canadians, China would have to invest also in the downstream processing of nickel to make stainless steel and nickel alloys here in Canada. This would add significantly to the efficiency and productivity of Canada's nonrewable resources, a much discussed issue at the federal level.

Importantly, from a climate change perspective, China would be wise to invest in downstream processing here because Canada has a wealth of low-carbon emitting sources of energy (hydro, nuclear and natural gas). Therefore stainless steel produced here would have a much smaller carbon footprint than any that can be produced in China where energy is generated largely by coal.

So. When will Canada's nickel producing provinces (Newfoundland and Labrador, Quebec, Ontario, Manitoba and Alberta) realize that they have a clearer competitive advantage and roll out the red carpet to actively welcome and encourage Chinese investment in stainless steel production capacity in Canada?

When that happens, Canadians will benefit more fully from the recent and future Chinese investments in Canadian nickel resources.

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